Two AI Stocks Poised for Major Growth

AI stocks have surged in value over the last few years, helping to push the S&P 500 to unprecedented highs. This excitement is largely due to AI’s ability to save time and resources for both companies and consumers, along with its potential to drive revolutionary innovations such as self-driving cars and advanced medical solutions. Those who capitalize on AI sooner rather than later could reap substantial rewards, prompting many investors to seek shares in these promising ventures.

However, there is a caveat: the prices of AI stocks have increased significantly. Fortunately, I have good news. There are two AI-focused companies currently recognized as bargains; they are among the least expensive of the “Magnificent Seven” stocks, which have been market leaders recently. Their robust business operations and AI initiatives position them well for remarkable growth. Let’s delve into these opportunities.

1. Alphabet

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) ranks as the second most affordable of the Magnificent Seven tech stocks, trading at only 27 times forward earnings estimates. This is a reasonable valuation, given its strong business growth.

As the parent company of Google, Alphabet dominates the global search engine market with over 90% market share. This command plays a critical role in its consistent revenue growth, as advertisers increasingly turn to Google to reach its extensive user base. Advertising represents the bulk of Alphabet’s revenue, but the rising performance of Google Cloud, driven by AI advancements, is contributing significantly to overall expansion.

In the last quarter, Google’s advertising revenue rose about 12% to $74 billion, and Google Cloud revenue surged 34% to reach $15 billion. Notably, Alphabet just achieved its first quarter with over $100 billion in revenue, reflecting a strong doubling of revenues in just five years. Looking ahead, the demand for AI infrastructure is poised to sustain growth in its cloud computing segment.

2. Meta Platforms

Meta Platforms (NASDAQ: META) is currently the most economical among the Magnificent Seven, with a forward P/E ratio of just 24. While many in this elite group saw significant stock price increases throughout the year, Meta’s growth has been slightly more muted, at just over 8%.

Meta’s extensive investments in AI, including hiring efforts and infrastructure development, may have raised concerns among some investors. However, CEO Mark Zuckerberg reassured stakeholders during a recent earnings call, explaining that despite high demand for compute power, Meta could opt to slow its expansion and utilize existing resources effectively, alleviating fears of surplus capacity.

Similar to Alphabet, Meta generates most of its income through advertising across its social media platforms, including Facebook and Instagram. Investments in AI are aimed at enhancing user engagement on these platforms and improving advertiser outcomes, which should ultimately drive revenue growth. Furthermore, Meta’s AI advancements may lead to additional revenue-generating products in the future.

Given this context, Meta is a promising buy at its current price, which positions it well for substantial upward movement in the future.

Adria Cimino does not possess shares of any companies mentioned. The Motley Fool holds positions in and recommends Alphabet and Meta Platforms. The Motley Fool maintains a disclosure policy.